How RetailNext invented smart store analytics

From a 14-year-old schoolboy speaking no English to running a leading smart store analytics company operating in 75 countries – this is the story of Alexei Agratchev, CEO of RetailNext.

There are moments in life that define what you become. For Russian-born entrepreneur Alexei Agratchev, CEO and co-founder of RetailNext, one of those life-changing moments took place in August of 1991, when he received a scholarship to go to a boarding school in Massachusetts, USA.

Alexei: “That first year after I arrived in the US was the toughest of my life. I had grown up in Moscow when it was still the Soviet Union, and I didn’t speak any English at the time. When I came to school in the U.S., I was shocked to see all of the different things that I could do.”

"That first year after I arrived in the US was the toughest of my life. I had grown up in Moscow when it was still the Soviet Union, and I didn’t speak any English at the time."

Disney CEO, Michael Eisner, served as Alexei’s guardian in the States while his parents remained in Moscow. Eisner’s connections, as well as Alexei’s own connections with the unbelievably successful business people in the families of the kids he went to high school and college with, exposed him to a whole range of new opportunities.

Now, at 40, Alexei thinks getting through that first year in the United States gave him the confidence to handle the life of an entrepreneur, with all of its highs and lows.

Retail – dead or alive?

Together with two co-founders, Alexei founded RetailNext in November of 2007 as the world’s first smart store analytics company, bringing e-commerce-style metrics to brick-and-mortar retail stores. Under Alexei’s oversight, RetailNext has grown to be the worldwide leader in retail analytics, with deployments in tens of thousands of stores in more than 75 countries.

Using visual data, RetailNext can tell, how many people walk by a store, and what percentage of those people go into the store.

But it didn’t start that way. Before RetailNext, Alexei worked at Cisco for a number of years, managing an engineering team for a relatively mature product line. He was thinking of leaving when his boss gave him the opportunity to create an internal startup in any area he wanted, as long as it was something that supported Cisco’s business.

Alexei: “I took five people from other projects, and we created a video security system for the casino market. It had nothing to do with analytics, really – we were trying to figure how to catch cheaters and thieves – but, as part of that work, we looked at probably 70 different computer vision and video analytics technologies, bringing in and testing at least 30 of them.”

The internal start-up went well, but after a while it came to the point where it had to be folded back into the larger corporation. At that point, Alexei took the first steps toward creating his own company.

Alexei: “I was visiting a friend who had done work for Target. He invited his contact at Target to hear about the technologies we had been working on at Cisco. Their reaction was that applying video-based analytics technology to retail could be something that really changed the way they did business. Based on their reaction, I figured that this might be a good place to focus.”

Alexei and his team started RetailNext from scratch in 2007, just before the financial crisis hit in 2008-2009. Physical retail companies – brick-and-mortar stores – were among the hardest hit. With stores closing and people panicking, it was not exactly an ideal time to talk about a new, cool technology for the retail industry.

"The fact is that brick-and-mortar stores are never going to go away. In the U.S. today, 90% of retail is still done physically."

Alexei: “Many were asking us if we were planning to pivot and focus on something else, because physical retail was basically ‘a dead industry.’ However, looking back, I think that keeping the focus on retail, and hiring experts to help us understand the business, was one of the most important things we did in the early days. The fact is that brick-and-mortar stores are never going to go away. In the U.S. today, 90% of retail is still done physically.”

Focusing on the customer experience

RetailNext provides a technology that helps retailers measure and improve the experience of their customers by capturing everything that happens inside and outside the physical store environment.

Using visual data, RetailNext can tell, for example, how many people walk by a store, what percentage of those people go into the store, where they spend time in the store, and how sales associates interact with customers. All of that data can then be correlated with other in-store data, such as point-of-sale information and labor schedules, as well as with external data, such as weather conditions.

Alexei: “For a physical retailer to stay in business, they have to compete based on experience, not just price and product. With access to our measurement data and analytics, a retailer can see right away if it’s difficult for shoppers to find the products they want, or if there is no one to help them when they need help, and they can address those problems quickly. A lot of our retailers have been amazed at what the data has shown them, and how seemingly small changes can make an enormous difference in their results.”

Convincing investors

RetailNext had challenges with early fundraising. Many Silicon Valley investors thought there was no money to be made in retail because retailers wouldn’t spend money on technology. They also believed the future was online, and didn’t understand why they should invest in a technology designed specifically for physical stores.

Many Silicon Valley investors thought there was no money to be made in retail because retailers wouldn’t spend money on technology.

RetailNext analyzes more than 800 million shoppers a month across dozens of retail chains.

Alexei: “The first premise was just ridiculous; retail is one of the largest industries in the world – a multi-trillion dollar industry. Yes, retailers spend less as a percentage of sales than some other industries, but given the amount of retail sales, that’s still plenty of spending.

“To the second point, it is true that some large brick-and-mortar retailers have gone out of business; one example is the recent bankruptcy of Toys ‘R’Us. But there are many reasons for this that are unrelated to the health of the retail industry as a whole – brands that no longer resonate with the consumer, poor product selection, dated stores, and a customer experience that is just not good. Many of these retailers cut labor costs during the financial crisis 10 years ago, and that just made things worse, because the sales associates are key to the customer’s experience in a store.

“Today, new brands start out going direct to the consumer online, hit a wall somewhere between $30 and $100 million in sales, open a store or two as an experiment, staffed by people who are really passionate about the brand in locations with great traffic, and are shocked at how much money the stores can bring in.”

Ahead of its time

Not many enterprise IoT companies operate at the scale RetailNext does. With just over 200 employees, it manages subcontractors in 75 countries across tens of thousands of store locations. But at the start, it seemed like RetailNext might be a bit ahead of its time.

Alexei: “Initially, the challenge was to create a sense of urgency. When we would meet retailers, they would come away from the meeting convinced that our technology was amazing and had real value, and that it could really change the way they run their stores. At the same time, they would say they just weren’t ready to go there yet because of all of the basic IT stuff on their plates. So, they would put us off for 12-18 months.”

"Initially, the challenge was to create a sense of urgency."

Then a few things changed. A rash of bankruptcies and liquidations in the retail industry created a sense of urgency, as retailers realized they needed to make investments in technologies like RetailNext in order to avoid the same fate.

Alexei: “Finally, we started to achieve critical mass once we convinced a couple of large retailers to roll out and use our system, and they got really good results. Now, when we meet with retail executives, there is a real sense of urgency in the room. This has accelerated our growth quite a bit over the last few years.”

Today, the inhibitors to RetailNext’s growth tend to be more internal. Scaling a business with a mostly direct sales model, one that’s global and involves both hardware and software, can create a variety of internal bottlenecks.

Alexei: “All in all, over the last two or three years, we have been growing very well. And the reason we aren’t growing faster has nothing to do with demand or customers or competition, and everything to do with how we scale the business.”

Integrating social and work life

Alexei gets pumped up when he talks about his customers – getting to know their businesses and walking the stores with them.

Alexei: “The easiest and most enjoyable part of my job is spending time with customers. A lot of my customers and colleagues are close friends; our families all know each other, we socialize outside of work, and we even combine vacations with business trips. I know a lot of people prefer to separate their work and social life, but I think it’s much better when it’s more integrated.”

"I know a lot of people prefer to separate their work and social life, but I think it’s much better when it’s more integrated."

Alexei has made a number of changes over the years that have improved his life and made it more manageable.

Alexei: “I travel a lot, but several years ago I stopped working on airplanes. I never open my laptop on the airplane or connect to Wi-Fi in the airport; instead I use the time to read, watch movies, and just relax. It has completely changed my life. I read 1-2 books a month, where I was previously lucky to read one a year.

“Also lately, I’ve been exercising more; waking up early and making sure I prioritize exercise when I’m at home and when I travel. Some of my customers run, so sometimes I meet up with a customer CEO for a run at breakfast. It’s a great way to interact with the customer, actually.”

While smart store analytics has been transforming one of the oldest and largest industries in the world, the founder of RetailNext continues to be excited about the future of retail.

Alexei: “I love meeting with customers who want to completely reimagine a store around how they sell their products and create a unique experience for their customers. When I graduated from college, I had no idea what I wanted to do. Needless to say, I never thought I would be running a retail company. But now, I can’t imagine working in any other industry.”